What's the difference between a bond and a stock?
Answers:
It is similar to the difference between a credit card and a debit card.
Equity (stocks) represent the value of the investment by the owners of the firm. Bonds are debt -- money that has been borrowed and must be paid back.
A bond pays a fixed rate of interest. It can rise and fall in price when interest rates change. A stock (also called a share), is a part-share in a company. If there are 1 million shares in existance in company X and you own one share, then you own 1 millionth of the company and are entitled to 1 millionth of the money paid out each year in dividends. It can rise and fall in price depending on what other investor think of the existing annual earnings and future profit potential of the company.
People talk of stocks and shares as the same thing. See wikipedia entry on 'stock' for nit-picking details of the meaning of 'stock'.
like the difference between you & me
In financial markets, stock is the capital raised by a corporation through the issuance and distribution of shares.
In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. Other stipulations may also be attached to the bond issue, such as the obligation for the issuer to provide certain information to the bond holder, or limitations on the behaviour of the issuer. Bonds are generally issued for a fixed term (the maturity) longer than one year.
A bond is mostly just a loan, but in the form of a security, although terminology used is rather different. The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest. Bonds enable the issuer to finance long-term investments with external funds. Debt securities with a maturity shorter than one year are typically bills.
It is the difference between loaning and owning. A bond is a share of debt. A stock is a share of the company's ownership, its equity after the debt.
Bonds are where you earn interest on some form of debt that has been issued by a company or municipality. A stock is an equity that has a value and depends on multiple factors as to whether that value will rise or fall.
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